Game of catch-up

Legislation passed last year allowed people ages 50 and older to increase the value of their retirement plan accounts before they retire. Unfortunately, this law overlooked federal employees.

Now, Congress finally is acting to remedy that situation. Federal workers ages 50 and older would be able to contribute more money to their Thrift Savings Plan retirement accounts each year, under a bill — H.R. 3340 — that recently was approved unanimously by the House.

Sen. Daniel Akaka (D-Hawaii) introduced an identical measure in the Senate — S. 1822 — and there is a "50-50" chance that the Senate will pass it by the end of the current congressional term, said Jordie Hannum, a legislative assistant for Rep. Connie Morella (R-Md.). A measure could move quickly under a unanimous consent agreement, Hannum added.

The so-called "catch-up contributions" bill would let 50-and-older feds contribute up to $2,000 more to their TSP accounts in 2003 than feds who are younger than 50 will be allowed to contribute. Morella, the bill's sponsor, said the contributions "will allow workers to make up for years when they were not employed, did not contribute to their plan or otherwise were unable to save. It is also particularly beneficial for women who have returned to the workforce after taking time away to raise families."

Morella also should have said that the legislation would allow federal workers to make up for years when there was no TSP.

Ordinarily, employees under the Civil Service Retirement System (CSRS) can contribute up to 8 percent of basic pay each pay period to their TSP accounts. Employees in the Federal Employees Retirement System (FERS) can contribute up to 13 percent of their basic pay each pay period. An annual contribution cap of $12,000 for 2003 applies to both groups.

Under H.R. 3340, 50-and-older feds could contribute up to $2,000 more than the limits for the year. For example, an employee under FERS who earns $50,000 a year would be able to contribute only $6,500 (13 percent) under normal rules to the TSP next year. If H.R. 3340 is enacted, the employee could contribute $8,500 next year. The catch-up contributions limit would rise to $3,000 in 2004 and $4,000 in 2005. From 2006 on, the limit would be $5,000 per year. The limit will be indexed for inflation for years after 2006.

However, actually allowing catch-up contributions in the TSP may be the easy part — the hard part may be the implementation. Can the TSP handle the raised minimum for eligible participants? Can agency payroll systems segregate catch-up contributions from other pretax deferrals? In light of the dismal record TSP officials have in implementing systems changes, there's a strong likelihood that they will botch this up. Then what?

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at milt.zall@verizon.net.